Banks

Banks: Singapore bank share prices look set to end 2015 in negative territory. However, CLSA believes a further de-rating is likely in 2016. The sector is trading at an average 1.3x trailing P/TCE for high-single-digit ROE and negative earnings momentum. House remains Underweight the sector but downgrade UOB to U-PF from O-PF (TP: $18.90), OCBC to SELL from U-PF (TP: $8.00) and DBS to SELL from U-PF (TP: $15.00). UOB remains its preferred pick among the three banks, while DBS is least preferred.

Like 2015, the focus next year will likely be on revenue and asset quality headwinds due to the unsupportive macro environment. However, CLSA believes asset quality will take centre stage with revenue challenges acting as runner up. Singapore, HK, Malaysia, Indonesia and Thailand are likely to experience higher NPLs while India will remain challenging.

Margin expansion will likely be held back by the divergent rate environment and competition while non-interest income is likely to be low-single digit as activity remains weak and one-off gains should largely be non-existent.

Meanwhile, expense growth will likely equal or outstrip revenue growth due to investments in staff, technology and compliance.

The combination of the above plus negative-mark-to-markets on liquid asset holdings and FX mean that book value and capital progression will likely be limited.

CLSA expects regulation overhang to continue until at least the end of 2016.